Talks get under way on banking supervisor

The European Commission hopes that the Council of Ministers and the European Parliament will reach an agreement on banking supervision plans in the first few weeks of January.

Talks started informally on Tuesday (18 December) and will continue in the new year between officials from Ireland – which takes over the presidency of the Council on 1 January – and MEPs, following an agreement by the European Union’s 27 finance ministers in the early hours of 13 December. The deal was later endorsed by the leaders of member states at the European Council.

Finance ministers agreed that the European Central Bank (ECB) would take on the role of supervisor for systemically important banks in the eurozone and in other EU countries that choose to take part.

In a concession to Germany, which wanted to restrict the scope of the supervisor’s powers, the ECB will normally supervise only about 150 of the eurozone’s largest banks directly – those with assets worth more than €30 billion or greater than 20% of their country’s gross domestic product (GDP).

This represents about 80% of the eurozone’s banking sector but is unlikely to include Germany’s regional Landesbanken, which Germany was keen to see excluded from direct ECB supervision. The Commission has denied that this will lead to a two-tier supervisory structure because the ECB will still have the power to intervene in any of the eurozone’s 3,000 banks if it deems it necessary.

The ECB is under pressure to demonstrate that it can keep its new role separate from its regular inflation-control activities. It will create a ‘mediation panel’ to settle disputes that arise when the ECB’s governing council disagrees with a decision of its supervisory board. EU sources have been keen to point out that this will not undermine the ECB’s ultimate authority. “The mediation panel will not have the final say,” said one official this week.

Speaking to the Parliament’s economic and monetary affairs committee on Monday (17 December), Mario Draghi, the president of the ECB, said that the ECB would “establish clear guiding principles and internal operating practices to ensure effective separation of monetary policy and financial supervision”.

However, he said: “The relationship between monetary policy and financial supervision is particularly important in times of crisis.” He added: “While separation of the two functions is essential, it is an established fact that stronger supervision facilitates the conduct of monetary policy.”

Start date

If talks go according to plan, the supervisory mechanism would become operational on 1 March 2014, one year after the legislation is set to come into force. The ECB would be able to start work earlier if it was in a position to do so. It is not yet clear how many non-eurozone countries will choose to take part in the supervisory structure.

A move to allow direct recapitalisation of banks by the eurozone’s rescue fund, the European Stability Mechanism (ESM), which is dependent on the supervisory mechanism coming into force, will not happen automatically but will need separate approval by eurozone finance ministers.